The GBP/USD was around 1.3400 as traders awaited a possible 25-bps rate cut from the Bank of England (BoE). This expectation arose from weak UK GDP and lower Consumer Price Index (CPI) numbers, indicating the BoE might ease rates before the year ends. Meanwhile, cautious remarks from the Federal Reserve prevented the Dollar from rallying significantly. During the North American session, GBP/USD rose by 0.28%, trading close to 1.3400 amid expectations of a BoE rate cut. However, risk aversion and the upcoming BoE decision affected the performance of the Sterling. Money markets reflected a strong likelihood of a 25-basis point rate cut, with another cut expected by mid-2026.

Negative Economic Indicators

UK data showed a contraction in the economy, with October GDP falling by 0.1% month-on-month. This, along with a CPI that remains almost double the BoE’s 2% target, may prompt the BoE to reconsider rates. In the US, key upcoming data includes Nonfarm Payroll figures, consumer inflation stats, and Retail Sales insights. Technical analysis indicated that GBP/USD is facing resistance near 1.3400. If it breaks through, potential upward targets are 1.3471 and 1.3527. If it drops below the 100-day Simple Moving Average at 1.3357, it could test the 1.3200 level. The market is gearing up for a Bank of England rate cut this week. Pricing in derivatives, like the Sterling Overnight Index Average (SONIA) futures, shows over 90% likelihood of a quarter-point reduction. This anticipation has been fueled by recent inflation data from the Office for National Statistics, which, although falling, remains stubbornly high at 3.9% in November 2025. The UK economy has faced challenges throughout 2025, with the latest GDP data showing a contraction in October and third-quarter growth adjusted down to just 0.1%. This slow growth puts the BoE in a tough spot, as it must choose between controlling inflation and sparking economic growth. Traders will focus on the BoE’s guidance regarding future rate cuts into 2026.

Impact of Federal Reserve Signals

While the UK economy appears weak, the US dollar is held back by increasingly dovish signals from the Federal Reserve. The upcoming Nonfarm Payrolls report will be closely watched. If the job numbers are weak, similar to last month’s addition of 150,000 jobs, it could reinforce the Fed’s stance and further weaken the dollar, providing support for GBP/USD. Since the rate cut is largely priced in, the actual movement will come from any surprises. This makes options strategies appealing. A “sell the fact” scenario could occur wherein the pound may drop after a cut if the BoE’s statement is particularly negative for future growth. Buying straddles on GBP/USD may allow traders to take advantage of expected volatility spikes around the Thursday announcement. Conversely, a contrarian trade betting on the BoE holding rates steady could lead to a significant pound rally. In such a situation, GBP/USD could quickly challenge the resistance levels of 1.3471 and 1.3500. A call option spread could be a defined-risk way to position for this less likely but potentially profitable outcome. Create your live VT Markets account and start trading now.

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